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One year after a global lockdown triggered by the COVID-19 outbreak, the United States federal government has continued to be supportive towards stimulating the economy through aids for eligible businesses, schools and towards vaccine production and distribution. The pandemic has kept a lot of investors on their toes due to an increase in market volatility. Coupled with these happenings, there have been various speculations on the impact of the new Biden administration policies–– which officially began on January 20, 2020, on the economy.

If you invest in real estate through Qualified Opportunity Zone Funds (QOZF) or thinking to invest in Qualified Opportunity Funds (QOFs), you would most likely be concerned about how the recent economic situation would impact your returns, taxes and investment opportunities.

Basic Requirements for QOF investments

The 2017 Tax Cuts and Jobs Act (TCJA) provided an opportunity for investors to contribute towards developing economically distressed communities through Qualified Opportunity Zone (QOZ) investment opportunities. Generally, these communities are nominated by a state, the District of Columbia, or a U.S. territory. Some basic requirements for investments through qualified opportunity zone funds and qualified opportunity zone businesses are :

180-Day Investment Requirement for QOF Investors

This requirement mandates taxpayers to invest gains from property sale in a QOF within a 180-day window starting from the date of the sale or exchange in order to qualify for capital gains tax deferral provided that the gain does not exceed the aggregate amount invested by the taxpayer in the Qualified Opportunity Fund. 

30-Month Substantial Improvement Period for QOFs

For a tangible property to qualify as an opportunity zone business property, it has to be used in a trade or business of the QOF and satisfy the substantial improvement requirement. This requirement provides that the original use of tangible property in the qualified opportunity zone acquired after 2017 must begin with the QOF or the QOF must substantially improve that property. Meeting the substantial improvement requirement is contingent on the additions to basis –– with respect to the qualified opportunity fund property –– held by the QOF during any 30-month period beginning after the date of acquisition, exceeding the adjusted basis of that property at any period starting from the 30-month substantial improvement period.

90-Percent Investment Standard for QOFs

A QOF as an investment vehicle could be a corporation or a partnership for the purpose of investing in qualified opportunity zone property and not another QOF. The ninety-percent investment standard requires a QOF to hold at least 90 percent of its assets in qualified opportunity zone property.

The average percentages of the QOF’s qualified opportunity zone property on the semi-annual testing dates must equal at least 90 percent of the QOF’s assets. If a QOF fails to meet this requirement and the average of the percentages of its qualified opportunity zone property on the testing dates does not equal at least 90 percent of the QOF’s assets, they would be subject to a penalty for each month it fails the requirement. If the failure is due to a reasonable cause, the penalty may not be imposed.

Working Capital Safe Harbor for Qualified Opportunity Zone Businesses 

For Qualified Opportunity Zone Businesses (QOZB), there is a requirement to have less than five percent of the average of the properties aggregate unadjusted bases attributable to non-qualified financial property excluding some certain working capital assets such as cash and cash equivalents from non-qualified financial property or reasonable amounts of working capital that are held in cash, cash equivalents, or debt instruments with a term of 18 months or less. 

A working capital safe harbor was provided for QOZBs to allow for treating certain amounts of working capital as reasonable provided certain requirements are met. Through a written schedule, a QOZB  can be allowed to utilize the expenditure of the working capital assets within 31 months of receiving the assets.

However, the working capital safe harbor period can be extended to a maximum 62-month period for certain reasons such as, if the qualified opportunity zone business is in a qualified opportunity zone within a federally declared disaster. Then, the qualified opportunity zone business may have additional time to a maximum of 24 months to use its working capital assets, subject to meeting the working capital safe harbor requirements. Given this, a qualified opportunity zone business located in a qualified opportunity zone, within a federally declared disaster, may have up to a maximum 86-months to expend reasonable working capital assets.

12-Month Reinvestment Period for QOFs

Selling off or disposing some or all of the qualified opportunity zone property in a QOF would result in proceeds or possible capital gains. If some or all of the proceeds in qualified opportunity zone property is invested by the QOF by the last day of the 12-month period from the date of the sale, or disposition, the reinvested proceeds can be treated as qualified opportunity zone property towards fulfilling the ninety-percent investment standard. This also applies if there is a distribution of the QOF’s qualified opportunity zone stock that qualifies as a return of capital.

However, there are requirements that need to be met for this treatment to be applicable in QOFs. The period before the proceeds from the sale, disposition or distribution is reinvested in qualified opportunity zone property, they have to be continuously held in cash, cash equivalents, or debt instruments with a term of 18 months or less. If any reinvestment plans in a qualified opportunity zone property is delayed as a result of a federally declared disaster, the QOF may get additional time up to a maximum of 12 months to reinvest the proceeds, subject to the QOF sticking to  the original investment plan. 

What’s new for investments in Qualified Opportunity Funds and Qualified Opportunity Zone Businesses

In response to the difficulties faced by many investors, the Internal Revenue Service (IRS) released the Notice 2021-10 on January 20, 2021. This release extended the relief for QOFs and their investors initially provided by Notice 2020-39 and also provided additional relief to help navigate around the requirements for the QOFs. The relief extensions are automatic and investors are not required to process any documentation.

180-Day Investment Requirement for QOFs

The released Notice 2021-10 provided an extension for the 180-day investment window for QOF investors until March 31, 2021. This enabled investors who had the last day of the 180-day window to invest their eligible gains from sale proceeds fall between any time from April 1, 2020, through March 31, 2021 have the opportunity to still invest in QOFs. Although this relief is automatic, as an investor in QOFs, you will be expected to make a valid deferral election on your federal income tax return –– including extensions, for the applicable tax year that the gain is expected to be recognized.

30-Month Substantial Improvement Period for QOFs and Qualified Opportunity Zone Businesses

As regards the 30-month substantial improvement period, If you hold a QOF property or qualified opportunity zone business property, the Notice 2021-10 relief allows that the period from April 1, 2020, and March 31, 2021 be disregarded in determining any 30-month substantial improvement period.

With the substantial improvement requirement, investors in QOFs are required to make improvements on a QOF property that increase their adjusted tax basis in the improved property within a 30-month window. The  Notice 2021-10 relief essentially provides more time for investors to improve their QOF property and qualify for possible tax benefits. 

90-Percent Investment Standard for QOFs

Under Notice 2021-10, if an investment in QOF has the last day of the first six-month period of a taxable year or the last day of a taxable year fall between the period of April 1, 2020, and June 30, 2021, failure by the QOF to satisfy the ninety-percent investment requirement for the applicable tax year is considered to be from a reasonable cause. This relief is also automatic and requires that the QOF fill all lines on Form 8996 completely with respect to each affected taxable year. The completed Form 8996 would need to be filed with the federal income tax return (including extensions) for the affected taxable year(s).

Working Capital Safe Harbor for Qualified Opportunity Zone Businesses

The Notice 2021-10 relief provides that Qualified Opportunity Zone Businesses with working capital assets that are planned to be covered by the working capital safe harbor before June 30, 2021, receive not more than an additional 24 months. This extension includes any relief provided under the previously provided relief in Notice 2020-39 and allows for a maximum safe harbor period up to 55 months and in the case of start-up businesses, up to 86 months subject to the requirements of the working capital safe harbor.

12-Month Reinvestment Period for QOFs

Following the existing 12-month reinvestment period requirement, if your investment in qualified opportunity funds has a 12-month reinvestment period that includes June 30, 2020, your QOFs would receive not more than an additional 12 months (including any relief provided under Notice 2020-39). This essentially means a combined maximum reinvestment period of not more than 24 months to reinvest some or all of the proceeds received by the QOF either in the form of a return of capital or the sale or disposition of some or all of any qualified opportunity zone property, in qualified opportunity zone property. The condition that the QOF invests the proceeds in the manner originally intended before June 30, 2020 still applies. 

In conclusion

These changes and updates for investments in QOFs may seem like a lot to process and implement, therefore it is advisable to employ the services of professional tax experts and accountants to provide clarity and more information that make it possible to maximize any potential tax benefits and opportunities.

Contact the Stax Capital team for more information on investments in qualified opportunity zone funds and businesses.

Capital gains in the United States are subject to tax when realized. As a real estate investor, this includes capital gains realized on property sold or exchanged. If you have sold or exchanged property resulting in any capital gains, you would be expected to report such gains in your tax return. However, you may be able to elect for a capital gains tax deferral if you opt to reinvest in like kind property or designated opportunity zone communities. 

Two popular property investment vehicles that encourage long-term real estate capital investments are the 1031 Exchange and the Qualified Opportunity Fund (QOF). They spur up investments by providing capital gains tax incentives on the sale or exchange of property investments. The underlying concept behind 1031 exchanges and QOFs is the opportunity to defer taxes when capital gains from property sale are reinvested in property using either of these vehicles.

Qualified Opportunity Funds and 1031 exchanges operate with different requirements. While they arguably serve diverse purposes, the tax advantage associated with these two investments vehicles spur up real estate investments. Here's what investments in QOFs and 1031 exchanges entail.

1031 Exchanges

The 1031 exchange gets its name from the Internal Revenue Code (Section 1031) which introduced a tax incentive for property capital gains when reinvested in a like kind property. This type of investment is sometimes referred to as a 1031 like kind exchange. When considering real estate investments through 1031 exchanges, it is important to be aware of the underlying rules that make your transaction qualify for capital gains tax deferral. Any mistakes may disqualify your property exchange transaction from being considered as a 1031 like kind exchange. 

When you make a property sale, you’ll need to identify the reinvestment property within 45 days from the sale or exchange of your relinquished property. The new property or properties would need to be of like kind nature with the relinquished property. You will also be expected to make this reinvestment within 180 days from the sale of your relinquished property. 

An important part of the 1031 exchange is using an intermediary to facilitate the exchange of properties as this cannot be done directly.

An important factor in a like kind exchange is the value of properties being exchanged. If the sale proceeds of the disposed property exceed the fair market value of the new property or if there is any exchange that is not considered like kind in nature, this can result in capital gains being realized. These capital gains would be subject to tax.

Qualified Opportunity Fund 

The tax incentive through investments in a Qualified Opportunity Zone was introduced by the Tax Cuts and Job Act (TCJA) in 2017. Real estate investors can contribute to economic development by investing in Qualified Opportunity Zones (QOZs). In return, investors get tax advantages on eligible capital gains invested in these distressed communities.

When you invest capital gains in a Qualified Opportunity Fund, you may be eligible for tax deferral subject to all requirements being met. One key requirement is that the investment of capital gains must be made within 45 days from the date which the property is disposed and gains are realized. Also, it is important to note that the ownership interest in QOFs should be equity and not debt. For qualified investments in a QOF, capital gains tax can be deferred until the earliest of when sold or by December 31, 2026. 

Asides a capital gains deferral, you may be able to reduce taxes on capital gains by 10% if you hold an investment in a QOF for at least 5 years. If your holding in a QOF is held longer for at least 7 years, your capital gains tax may be reduced by 15%.

The great part about property investments in a QOF is that investors may be eligible for a total tax elimination on capital gains realized from the disposal of your qualified investment in a QOF.

Opportunity Funds or 1031 Exchanges? Factors to Consider

While the best capital gain reinvestment decision would depend on specific situations and the best optimal wealth management strategies, here’s what to consider when exploring capital  gains reinvestments in either a 1031 like kind exchange or a Qualified Opportunity Fund.

Flexibility:

The flexibility of investing in either a Qualified Opportunity Fund or a 1031 exchange varies and may suit different investment goals. Investments in  Qualified Opportunity Funds have to be in communities designated as QOZs while for 1031 exchanges, properties exchanged need to be of like kind in class and nature.  As an investor, whatever option you decide to invest through would be limited based on these restrictions.

Also, Investments in QOFs are more flexible and can be done directly without the need for an intermediary. 1031 exchange investments on the other hand require the use of an intermediary. A property reinvestment  is only deemed a qualified transaction for a 1031 exchange when property exchanged is carried out through a third party called a facilitator or an intermediary. The facilitator is responsible for collecting and transferring the sale proceeds as well as the reinvestment property.

Tax deferral:

While capital gains investments in 1031 exchanges and Qualified Opportunity Funds provide incentives for tax deferral, tax deferrals for QOFs are time sensitive. Tax deferrals from reinvestments in QOFs are on the earlier of a sale or exchange of a qualified investment or December 31, 2026. There are therefore uncertainties around this benefit for investors who need to hold their investments for longer.

In comparison, an eligible tax deferral on 1031 exchange investments comes into effect at any time of disposal of the reinvested property.

Tax elimination:

There is the possibility of tax elimination with investments in Qualified Opportunity Funds. This elimination may only be applicable after 10 years of holding qualified investments in a QOF and it is applied on the capital gains from sale of the interest in a QOF. An investment in property through a 1031 like kind exchange would usually not allow for tax elimination of gains after property sale or exchange.

Timeline:

One of the key rules for a capital gain reinvestment  in property to qualify as a 1031 like kind exchange is that the new property has to be identified within 45 days after the sale or exchange of the disposed property. In addition to this rule, the sale or exchange of properties needs to be done within 180 days from the sale or exchange of the disposed property.

The requirements for investments in Qualified Opportunity Funds  does not include a property identification timeline , however, the Internal Revenue Service (IRS) requires that reinvestment of capital gains are done within 180 days from when they are realized.

Reinvestment value:

The basic rule for capital gains reinvestments to qualify as a 1031 exchange is the reinvestment in like kind property. Any reinvestments in property that does not qualify as like kind or property with market value below the relinquished property may result in gains that are subject to tax. In this case, the entire principal and capital gains from a property sale may need to be fully reinvested to benefit the full tax deferral advantage.

For Qualified Opportunity Funds, there is no requirement to reinvest the principal from property sale. You can benefit from the tax deferral incentive that comes with investing in a Qualified Opportunity Zone by only reinvesting the capital gain from your disposed investment.

Capital gains:

Capital gains deferral through a DST are realized through property sale or exchange, while capital gains deferred through a QOF can be gotten through other forms of investment like stocks or bonds. This provides more opportunities for investors looking to manage their capital gains tax from a broader range of investment portfolios.

Final Thoughts

Qualified Opportunity Funds and 1031 exchanges provide means for managing capital gains tax. Both vehicles have tax advantages when certain rules and requirements are met. A 1031 like kind exchange may qualify for tax deferral and a holding in a QOF can lead to capital gains tax deferral, reduction or even elimination. 

The decision to use either a 1031 exchange or a QOF is dependent on specific investment goals as well as preference. You can choose one vehicle over the other based on the flexibility of your investment transactions or the location of investment property that suits your preference.

Also this decision may be made based on the need to take advantage of possible tax reduction or elimination on property capital gains. Both investment vehicles are available to accredited investors who are deemed financially sophisticated to invest in non-publicly traded investments. The nature of investments in QOFs and 1031 exchanges make them complicated alternative investments and thus require assessment and advise from tax experts or investment advisors .

Finding the best investment partner as a real estate investor is very important. The best investment partner is one that works with you to understand the different investment options you have and provide effective investment strategies to help you reach your goals. Stax Capital provides years of experience and professionalism in alternative real estate investments. You can explore property investments through a 1031 exchange with Stax Capital. The Delaware Statutory Trusts vehicle offered by Stax Capital qualifies as 1031 like kind exchange through which you can reinvest your capital gains from property sale. We also offer real estate opportunities through Qualified Opportunity Funds that may be eligible for capital gains deferral, provided all requirements are met. 

 

The main goal of investing is to earn returns. No investor really looks forward to investments that yield losses and even if such an investor exists, that would not be the norm. However, in reality, losses occur; economies experience downturns and stock prices dip.

How then can you protect yourself from making losses on your investments? While you cannot control the direction of the financial markets or investment prices and returns, you can mitigate against investment risks by diversifying your investment portfolio. One of such ways is through real estate investment.

Even the best diversification strategy does not guarantee a hundred percent protection against total investment losses, however, investment diversification may reduce losses and cushion the impact of any loss experienced by some assets in your portfolio.

What is investment diversification?

Financial markets are volatile and dependent on a lot of factors such as government policies, politics, interest rates, inflation rates, economic cycles and much more. While there are expectations of profits and returns, the uncertainty in investment performance still remains.

Investment diversification is the risk management strategy geared towards mitigating and reducing losses due to market uncertainties and fluctuations by having a diversified portfolio of assets.

For example, if you put all your investments into just one company’s stock, you stand a chance of losing some or all of your money if the company makes losses or goes bankrupt.

Investment diversification in this scenario would mean you making the decision to invest in multiple company stocks so that if one company’s stock value falls and causes you to lose money, your investment in the other companies may not lose value and even yield returns.

Your investment diversification strategy may even include investing in different financial markets and across different industries.

How do you go about diversifying your investment portfolio?

If you want to diversify your investments and broaden your portfolio you may begin by investing in multiple company stocks, exploring alternative assets like real estate, including fixed income assets like bonds or government bills into your asset allocation or buying into commodities.

Diversifying your portfolio doesn’t just mean buying into any and every available stock, fund, bond, property or investment vehicle, it should involve careful consideration of what your financial expectations are, and it should also depend on your investment objectives.

The asset allocation you choose should reflect your risk appetite, expected returns, length or period of investment and your financial status.

If you have little to no knowledge about how these investment assets work, it is recommended to use the services of experienced professionals who advise you on how best to spread your assets in your investment portfolio according to your risk appetite and return expectations.

What are the benefits of investment diversification?

When you diversify your investment portfolio, you may limit the exposure to losses and the risk of eroding your entire investment principal or any returns you may have made and re-invested.

If you spread your investments across different company stocks or even across different classes of assets such as bonds, commodities or real estate, the chances of you losing all your money across all investment platforms are low. Also, high returns in certain investment assets can offset the losses made in other assets.

Here are a few reasons why you may choose investment diversification:

You want to manage your exposure to investment risks and losses

You want to take advantage of different investment return opportunities

You want investments with different levels of liquidity or maturity

You want to participate across different financial markets and assets

Diversification may indeed help you make the best out of your investments. It is a strategy that may help manage your portfolio and cushion effects of market fluctuations or potential losses.

What investment diversification options exist?

 You can diversify your investments across different asset types and classes. Investment diversification may also be across different countries, terms to maturity, liquidity etc.

Investing in some assets may prove an aggressive growth strategy, they may yield higher returns but in turn have greater risks, on the other hand, some investment assets are more conservative in terms of returns but may be less risky.

Depending on your risk appetite, you can either have a mix of growth and conservative investment assets. An investor with higher risk appetite would most likely invest in more aggressive assets that are expected to yield higher returns even though risky.

You may choose to diversify and invest within or across different financial markets such as: money market, stock market, fixed income market, commodity markets, real estate market.

You can choose to invest across local and international financial markets to diversify and prevent country specific risks. Your portfolio may include a mix of short-term to long-term investments or a mix of fixed income and variable returns investment assets.

Your diversified portfolio can also be spread across different types of funds such as mutual funds, exchange traded funds (ETFs) or real estate funds and trusts. There are a lot of investment diversification options to explore.

 Diversification through real estate investment

The real estate market provides an alternative investment path other than a conventional equity investment or bond investment. Similar to other financial markets, returns are not guaranteed and there could be risks involved.

However, investing in real estate may be a good way to diversify your investment portfolio. The real estate market offers opportunities to invest in either residential or commercial properties or through real estate trusts, funds and programs.

Real estate investments paired with other asset classes can provide an avenue to have a balanced portfolio that mitigates against extreme losses while pursuing returns and capital gains.

If you choose to diversify your investment portfolio through the real estate market, you can do so by: buying properties directly, investing in a real estate trust or fund such as a Real Estate Investment Trust (REIT), the Delaware Statutory Trusts or buying into a real estate program.

Including real estate in your asset allocation is definitely an option to diversify your investment portfolio but you need to be aware of the fact that it is not as liquid as other conventional assets such as stocks and bonds.

 Choosing a real estate investment partner

In real estate investing, as with other investments, you need to be knowledgeable about the possibilities, risks, opportunities and returns as well as the methodology involved.

Investing in properties requires a high level of expertise or professionalism in order to take advantage of opportunities or maximize returns where applicable.

When choosing a real estate investment company to partner with, it is advisable to consider the following:

A reputable real estate investment company has the required expertise to explain property investment options, carry out adequate due diligence and efficiently manage any properties under their portfolio.

Work with Stax Capital to diversify your portfolio through real estate investment

The Stax Capital team is made up of highly experienced professionals who are committed to assisting you achieve financial freedom through your real estate investment portfolio.

Stax capital provides opportunities in real estate investment through the following investment vehicles:

Delaware Statutory Trusts:

If you want to take advantage of the 1031 exchange and effectively manage your real estate investment returns, Stax capital offers investment opportunities through Delaware Statutory Trusts (DSTs).

DSTs are an attractive channel for real estate investment, they can provide an advantage for deferring capital tax gains through the 1031 exchange for like-kind investments.

Real estate investing through DSTs, while promising, involves complexities and intricacies that can best be managed by professionals such as the Stax Capital team.

If you are looking to make real estate investment into a like-kind property or own fractional ownership in real estate properties, you can explore the Delaware Statutory Trusts managed by Stax Capital. As an investor looking to diversify your investment portfolio, get access to the possibilities and flexibility offered by the real estate market.

Qualified Opportunity Funds:

Another avenue to take advantage of tax incentives through real estate investment is through Qualified Opportunity Funds (QOFs).

Partner with Stax Capital to help you strategize on real estate investment channels through QOFs based on real estate in Qualified Opportunity Zones (QOZs). As professionals, we help you explore and plug into the advantages of deferring, reducing or even eliminating property capital gains tax.

Direct Participation Programs:

With over a decade of being involved with Direct Participation Programs (DPPs), The Stax Capital team operates with due diligence and best management practices to provide various effective real estate investment platforms.

Alternative investments in real estate vehicles such as Delaware Statutory Trusts, Qualified Opportunity Funds and Direct Participation Programs provide a means for portfolio diversification.

These investment opportunities may provide potential tax advantages and/or higher investment returns, however, there are associated risks. Some of these risks include liquidity risk, dependence on professionals for decision making, and other market risks.

It is important to work with an investment partner like Stax Capital to help you understand any associated risks while helping you to take advantage of possible benefits in the real estate market.

Did you know that more than 52 million Americans live in distressed communities? Thanks to the 2017 Tax Cuts and Jobs Act (TCJA), there are new federal incentives for investing in these areas. The intent is to close the inequality gap between affluent and distressed communities.

The federal government refers to these distressed communities as opportunity zones. Governors and mayors from across the United States nominate them. A designation unlocks three powerful tax breaks at the federal level.

Read on to learn all about opportunity zones. Explore important topics such as tax benefits and regulations that govern the federal program.

What Are the Rules and Regulations?

Before we dive into the potential financial benefits, it is necessary to discuss some of the program’s rules and regulations. Also, you will be provided with a brief description of important program terms.

Qualified Opportunity Zone Property

This federal program is designed to encourage real estate and business investment in distressed communities. In its simplest terms, the government wants investors to build or renovate physical assets in distressed zip codes.

When discussing the program, you will frequently hear the term qualified opportunity zone (QOZ) property. QOZ properties are the byproduct of financial resources pouring into the community.

There is also a date requirement imposed by the United States Treasury Department. A real estate holding does not qualify as a QOZ property if it was acquired before December 31st, 2017.

If you acquire assets that are already operating in the zone, they do not automatically qualify as a QOZ property. Instead, you must commit to significant improvements to these properties.

The government requires improvements of at least $1 million to qualify. In addition, this investment must be made within 30 days of property acquisition.
It is important to note that some existing businesses will not qualify as a QOZ property. A few ineligible examples include liquor stores, massage parlors, racetracks, and golf courses.

QOZ Fund

A QOZ fund is a vehicle in which investors place their financial holdings. The fund is organized as a partnership or corporation. Accordingly, federal income taxes are filed under this business designation.

QOZ funds are used almost exclusively for the acquisition of QOZ properties. They use capital for purchasing or renovating a tangible real estate asset.

An important regulation to be aware of is the 90% rule. According to the Treasury Department, a QOZ fund must have at least 90% of its holdings in QOZ properties.

Like any financial fund, the valuation may rise or fall depending on the performance of investments. There will be cash flow as properties may be leased or sold to third parties over time.

There are factors that could decrease the properties’ valuation. Other potential pitfalls such as business risk, market loss, and liquidity risk are all in play.

What Are the Major Tax Breaks?

Now that we have described the important terms, you are probably wondering what is in it for me? The TCJA provides three major tax breaks for investors in QOZ funds.

Tax Deferral

One benefit is that you can temporarily defer federal taxes until the end of 2026. This applies to some or all of the capital gains that are reinvested in a QOZ fund. The deferral period maybe sooner if you decide to sell or exchange the interest you have in a QOZ fund.

Step Up in Tax Basis

The longer you hold a QOZ asset, the greater the tax benefit. Assets that are held for five years are eligible for a 10% step-up in tax basis. If you hold an asset for seven years, the step-up in tax basis increases to 15%.

When considering the tax benefits, it is important to remember the controlling dates. Taxes on capital gains are deferred until the end of 2026.

Therefore, an investment would have been needed prior to December 31st, 2019 to reap the full 15% benefit. To get the 10% step-up in tax basis, an investment needs to take place before December 31st, 2021.

No Tax on Appreciation

Holding the asset for more than ten years will result in a permanent exclusion from taxable income on capital gains. The result is that the cost basis of the property is equal to the fair market value on the date of the sale or exchange.

When Does the 180-Day Investment Period Begin?

To qualify for these tax benefits, you need to reinvest capital gains in a QOZ fund within 180 days. Many partnerships and S-corporations wonder when the 180-day investment period begins?

According to the IRS, you have three different options to start the clock. The first option is the last day of the taxable year.

Second, you could start the clock when capital gains are generated. The last option is the due date for the company’s tax return without an extension.

Is My Zip Code Eligible?

Now that we have covered the generous tax benefits, it is time to see if you can take advantage. You do not have to live in a QOZ to take advantage. The program only pertains to real estate acquisition and development in a designated QOZ.

The IRS provides a list and map of QOZs. These areas appear in the list and map as census tracts. On the map, these census tracts appear in blue and meet the government’s criteria for a low-income community.

The list of QOZs includes an identifier for the population census tract. This identifier is an 11-digit number and is sometimes referred to as a GEOID.

What Are the Risks?

There are some risks that investors should consider. For starters, you have to financially prepare for the end of tax deferment in 2027.

In addition, the real estate development project may not live up to its marketed potential. If a particular area becomes unattractive, it may prove difficult to sell the real estate asset.

There are also political risks associated with QOZs. The law could be amended at any point or new regulations added that make it less financially appealing. There is no guaranteed rate of return on a QOZ investment and you certainly could lose money.

Investing in Opportunity Zones – A Recap

QOZs are designed to promote economic development and job creation in distressed communities. Your partnership, LLC, or S-Corp could benefit by reinvesting capital gains in a QOZ fund. There are powerful tax incentives like tax deferral and reduced taxes.

If you want to learn more about investing in opportunity zones, contact us today to speak with a specialist.

DISCLOSURE

This website is for informational purposes only. This website does not provide investment advice or recommendations, nor is it an offer or solicitation of any kind to buy or sell any investment products. Securities offered through Stax Capital, Member FINRA & SIPC. Stax Capital is located at 7960 Entrada Lazanja, San Diego, CA 92127. Contact us toll free at 844-427-1031. Private Placements and Direct Participation Programs are speculative investments and involve a high degree of risk. An investor could lose all or a substantial portion of his/her investment. Investors must have the financial ability, sophistication/experience and willingness to bear the risks of an investment in Private Placements and Direct Participation Programs. Private Placements and Direct Participation Program offering materials are not reviewed or approved by federal or state regulators. Investors should not place undue reliance on hypothetical or pro forma performance summaries. Investors must conduct their own due diligence and should rely on the advice of their own financial, tax and legal advisors prior to making any investment decisions.

The contents of this website are neither an offer to sell nor a solicitation of an offer to buy any security which can only be made by prospectus. Investing in real estate and 1031 exchange replacement properties may not be suitable for all investors and may involve significant risks. These risks include, but are not limited to, lack of liquidity, limited transferability, conflicts of interest and real estate fluctuations based upon a number of factors, which may include changes in interest rates, laws, operating expenses, insurance costs and tenant turnover. Investors should also understand all fees associated with a particular investment and how those fees could affect the overall performance of the investment. Neither Stax Capital nor any of its representatives provide tax or legal advice, as such advice can only be provided by a qualified tax or legal professional, who all investors should consult prior to making any investment decision. Pursuant to SEC rule 501 of Regulation D, prior to engaging in substantive discussions regarding DST specific investments, investors must first be qualified as an accredited investor, by way of meeting certain income or net worth requirements.

Past performance is not an indication of future returns.

This site may contain forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of Stax Capital or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.

There are substantial risks in the DST Investment program. This type of investment is speculative, is illiquid, and carries a high degree of risk – including the potential loss of the entire investment. See the “risk factors” in the Private Placement Memorandum for a complete discussion of the risks relevant to DST offerings. Investors have no control over management of the Trust or the property. There is no guarantee that investors will receive any return. Distributions may be derived from sources other than earnings. The property will be subject to a Master Lease with an Affiliate of the Sponsor. The property will be subject to the risks generally associated with the acquisition, ownership and operation of real estate including, without limitation, environmental concerns, competition, occupancy, easements and restrictions and other real estate related risks. The properties may be leveraged. The Manager, the Master Tenant and their Affiliates will receive substantial compensation in connection with the Offering and in connection with the ongoing management and operation of the property. The Manager, the Trust, the Master Tenant and their Affiliates will be subject to certain conflicts of interest. An investment in the Interests involves certain tax risks.

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